Alexander van der Lof, CEO of technology company TKH:
“The increase in turnover and profit can be considered extraordinary. It shows that we made the right strategic choices and this inspires us to continue on the same successful path. TKH’s technological basis is our strength and it is good to look back and see how we have managed to expand and strengthen this basis in recent years. Our clients challenge us to provide innovative technology or work with them to develop this technology. TKH has succeeded in providing added value in technologies that make processes more efficient and secure, with a high return on the investments for our customers. The scale we have realised in recent years has boosted the improvement in our margins. This has translated into a ROS of 10% in 2014, which has in turn inspired us to raise our ROS target for the coming years.”
In 2014, TKH’s turnover came in € 152.5 million higher (12.7%) at € 1,350.4 million (2013: € 1,197.8 million). Acquisitions contributed 0.5% to turnover. Reduced raw materials prices had a negative impact of 0.7% on turnover. Organic turnover growth was 12.9% on balance.
The strongest turnover growth, of 23.9%, was recorded by Industrial Solutions. Turnover at Telecom Solutions was up 5.4%, while turnover at Building Solutions came in 2.5% higher. For the full-year 2014, the contribution to turnover from Industrial Solutions increased to 51%, from 46% the previous year, while the contribution from Building Solutions declined to 37% from 41%. Telecom Solution’s contribution dropped to 12%, from 13% a year earlier. Innovations once again made a very positive contribution to turnover, accounting for 22.8% of turnover in 2014 (2013: 21.2%).
TKH saw gross margin increase to 42.6%, from 41.7% in 2013, thanks to an improvement in product mix. Operating costs (excluding one-off income and expenses) as a percentage of turnover declined to 32.6% in 2014, from 33.3% in 2013. Depreciation came in higher at € 19.9 million, up € 0.5 million compared to 2013, due to a higher level of investments in recent years.
The operating result before amortisation of intangible assets and one-off income and expenses (EBITA) came in 35.4% higher at € 135.1 million in 2014, compared with € 99.8 million in 2013. EBITA at Industrial Solutions was up 56.7%, and climbed 9.4% at Building Solutions. Telecom Solutions recorded a 2.0% increase in EBITA compared to 2013. The ROS increased to 10.0% (2013: 8.3%) and came in at the upper end of the ROS target TKH had previously communicated (bandwidth of 9-10%).
In the fourth quarter of 2014, various pension plans in the Netherlands were changed and harmonised in line with new pension legislation. TKH replaced these pension plans with a defined contribution plan, which are covered by a pension insurer. This eliminated future commitments and resulted in one-off income of € 9.4 million in 2014 (2013: one-off charge of € 7.2 million due to restructuring costs). EBITA, including one-off income and expenses, came in at € 51.9 million (56.1%) higher at € 144.6 million.
Amortisation increased by €1.1 million to € 26.2 million due to higher investments in research & development. TKH also recognised an impairment of net € 0.6 million.
In 2014, TKH saw financial expenses decline by € 4.8 million to € 10.4 million. The improvement was due to a one-off amortisation of capitalised financing costs in 2013 as a result of the renewed credit facility in October 2013, as well as reduced interest and lower credit spreads and the termination of interest rate swaps in 2014. Lower interest charges were offset by a lower result from participations, which in 2013 benefited from positive exchange rate effects.
The tax rate declined to 20.6% in 2014, from 22.5% in 2013. The application of the Dutch innovation box facility had a positive impact on the tax rate, thanks to the high share of innovations in the turnover of TKH and related profit.
Net profit before amortisation and one-off income and expenses attributable to shareholders was € 86.3 million in 2014 (2013: € 55.9 million), a year-on-year increase of 54.4%. Net profit for the full year 2014 came in higher at € 85.4 million (2013: € 41.7 million). Earnings per share before amortisation and one-off income and expenses came in at € 2.23 (2013: € 1.48). Ordinary earnings per share were € 2.14 (2013: € 0.98).
TKH recorded an increase in operational cash flow to € 94.9 million (2013: € 78.6 million). Working capital as a percentage of turnover increased slightly in 2014 to 13.8% (2013: 13.2%). Net investments in property and equipment came in at € 34.2 million in 2014 (2013: € 18.7 million). A large proportion of these expenditure were related to investments in TKH’s production facilities, including the expansion of capacity for the sub-segment manufacturing systems and fibre network systems. In addition, TKH invested € 22.5 million in intangible fixed assets, primarily in R&D, patents, licences and software (2013: € 16.8 million). Expenditure for acquisitions totalled € 6.8 million for GF Messtechnik GmbH (June 30, 2014) and the settlement of some option and earn-out arrangements. Furthermore, an additional interest in Augusta Technologie AG ("Augusta") was acquired from some minority shareholders for € 65.5 million.
TKH had reduced its net bank debt by € 20.8 million to € 164.8 million at year-end 2014 compared to the year-earlier period, partly due to the issuance of 3,061,225 (depository receipts for) ordinary shares in November 2014. The net proceeds from the share issue amounted to € 74.1 million and these proceeds are being used to finance the acquisition of Commend, the squeeze-out of the Augusta minority shareholders, investments and for general operating purposes. The share issue and the net result realised raised the solvency ratio to 44.9% in 2014 (2013: 40.7%). TKH is operating well within the financial ratios agreed with its banks. The net debt/EBITDA ratio stood at 1.0 and the interest coverage ratio at 18.9.
TKH had a total workforce (FTEs) of 5,030 at year-end 2014 (2013: 4,802) and employed a further 483 (FTEs) temporary employees at year-end 2014. The increase in the number of staff was largely due to the strong increase in activity at Industrial Solutions and additional hires to bolster the organisation on the R&D and commerce fronts at Building Solutions.
Progress in realisation targets and strategy
The growth in turnover and profit was largely driven by TKH Group’s technological developments in recent years and the company’s focus on the four core technologies - vision & security, communication, connectivity and manufacturing systems – combined with the seven vertical growth markets - optical fibre networks, parking, tunnels & infra, healthcare, marine, oil & gas, industrial machine vision and tyre manufacturing.
In 2014, we took a major step towards realising our ambition to increase turnover from the 2012 figure of € 450 million in the vertical markets by some € 300 to € 500 million in three to five years, following the growth of € 185 million realised in these markets in 2014. More than € 140 million of this growth came from the tyre manufacturing market. TKH also booked solid progress in the other vertical markets. This translated partly into an increase in turnover, which came from the realisation of some leading projects. In addition, TKH invested in technological development and bolstered the commercial organisation to realise its medium-term growth target.
As a result of the above, TKH expects turnover to grow by € 300 to € 500 million in the next three to five years in the seven vertical growth markets the group has defined.
Partly due to the higher margins realised in the vertical growth markets, TKH realised both its ROS and ROCE targets in 2014. The ROS came in at 10% (2013: 8.3%), which is at the upper end of the target bandwidth of 9-10%. The ROCE, at 20.3%, (2013: 15.9%) was also at the upper end of the target bandwidth of 18-20%. On the basis of the perspective offered by the vertical growth market strategy combined with benefits of scale, TKH has decided to increase its ROS target to a bandwidth of 10-11% for the medium term.
The innovation component in TKH’s turnover remained high at 22.8% in 2014 and was once again well above TKH’s target of generating 15% of its turnover from innovations launched on the market over the past two years. Innovations also helped TKH to increase its market share in 2014.
Change in segmentation
Effective 1 January 2015, TKH Group has simplified the segmentation of its operations. Due to the increased focus introduced in recent years, TKH has decided to integrate the Telecom Solutions sub-segment copper networks – which generates just 1.2% of turnover - in the sub-segment indoor telecom systems, due the limited size of the copper networks operation. Within Building Solutions, TKH Group has decided to integrate the sub-segment building technologies, with a turnover share of 6.7%, into the other two sub-segments: vision & security systems (30%) and connectivity systems (70%). These moves complete a process of simplification to bring the organisation more in line TKH’s technological focus in recent years, and have reduced the number of sub-segments to six.
Developments per solutions segment
Telecom Solutions develops, produces and supplies systems ranging from basic outdoor infrastructure for telecom and CATV networks through to indoor home networking applications. The focus of the business is on the delivery of completely worry-free systems for its clients, thanks to the system guarantees it provides. Around 40% of the portfolio consists of hub-to-hub optical fibre and copper cable systems. The remaining 60%, consisting of components and systems in the field of connectivity and peripherals, is deployed primarily in the network hubs.